Parties

Initiator: Bank D

Respondent: Bank S

Summary of Initiator's representations:

The irrevocable and unconfirmed documentary credit no. 1234 BTY 56789 for EUR 730,000 issued on 7 May 2004 by the Respondent, as amended on 11 May 2004, (the "credit") was available with the Initiator or any bank by negotiation against, inter alia, the following documents:

- copy or photocopy of T2, and insurance policy or certificate issued in the name of the Respondent covering all risks, war risks included, for 110% of CIF value, and

- beneficiary's certificate stating that one original of the following documents (original T2L, invoice and B/L) have been sent by courier to the Respondent immediately after shipment quoting the Respondent's reference.

The credit was subject to ICC Uniform Customs and Practice for Documentary Credits ("UCP 500") and provided for a presentation period of 21 days, a latest shipment date of 25 June 2004 and an expiry date of 16 July 2004.

On or before 28 June 2004, the Initiator negotiated the beneficiary's presentation of EUR 730,000 and, according to the terms of the credit, sent that presentation by courier to the Respondent. On 30 June 2004, the Initiator received the Respondent's notice of refusal stating the following discrepancies:

- T2L presented instead of T2;

- photocopy of insurance certificate presented instead of original;

- the beneficiary of the insurance is the beneficiary under the L/C instead of the Respondent.

On or before 12 July 2004, the beneficiary presented to the Initiator:

- a copy of a T2; and

- a new insurance certificate.

On the same day, the Initiator forwarded such revised documents (each a "substitute document" and the "substitute documents") to the Respondent. On 16 July 2004, the Respondent gave the Initiator notice of its refusal (the "refusal"), holding documents at the Initiator's disposal and referring to the discrepancies as follows:

"We have observed amongst others the following discrepancies:

- T2L has not been corrected. We maintain the discrepancy indicated in our SWIFT dated 2 July 2004;

- insurance certificate presented once again, issued to bearer, countersigned by a third party different from the drawee, not endorsed and the document is incomplete.

The applicant has returned the documents presented with discrepancies, including the documents sent directly by the beneficiary to him."

The Initiator rejected the Respondent's refusals in various detailed communications on and after 19 July 2004 for the following reasons:

- In its refusal of 30 June of 2004, the Respondent placed the documents at the Initiator's disposal, and in its refusal of 16 July 2004 the Respondent informed the Initiator that the applicant has returned the documents, so that, without any authorization of the Initiator to that effect, the Respondent has actually not held the documents at the disposal of the Initiator and therefore has lost any right to refuse the documents.

- The copy of T2 is a copy of a new document which replaces the certificate T2L submitted with the initial presentation.

- The insurance certificate is issued to the Respondent, the name of which appears in the left upper space, and there is no requirement in the credit that "Claims payable at" may not be blank, and the reference to "special instructions overleaf" means that, if there are any special instructions, one would find them overleaf.

In its letters of 18 August and 14 September 2004 to the Respondent, the Initiator indicated its intention to seek a DOCDEX decision should the Respondent fail to pay, and asked the Respondent to agree to abide by a DOCDEX decision. In its Request the Initiator confirms that one copy thereof, including all documents attached thereto, have been sent to the Respondent in accordance with Article 2.2.6 of the ICC DOCDEX rules.

Summary of Respondent's representations:

The Respondent did not submit an Answer pursuant to article 5.2 of the ICC DOCDEX rules. The Respondent's second advice of refusal of 20 July 2004 and further communications of 29 July, 4 August, 10 September and 10 December 2004 do not show any acceptance of DOCDEX and indicate summarily the following reasons for refusal of the documents by the Respondent:

- Documents were always in the Respondent's possession and at the Initiator's disposal, and the applicant was only asked for his waiver of all discrepancies, in compliance with article 14 of UCP 500.

- The copy of T2 is not a copy of a T2L originally presented by the beneficiary and negotiated by the Initiator, and the Respondent did not receive any original of the certificate T2, from which such copy may have been made.

- The insurance certificate does not comply with credit terms, since the field for the beneficiary and "claims payable at" are in blank and therefore inconsistent with paragraphs 194 and 195 of ISBP 645, and is also incomplete as per paragraph 29 of ISBP 645, since it refers to instructions overleaf and does not show any instructions overleaf.

- The Respondent has never accepted substitute documents as part of the Initiator's presentation refused on 30 June 2004.

Analysis

1. Pursuant to sub-article 14 (e) of UCP 500, the Respondent (as issuing bank) is precluded from claiming that the documents are not in compliance with the terms and conditions of the credit if the Respondent failed to act in accordance with the provisions of article 14 of UCP 500 and/or failed to hold the documents at the disposal of, or return them to, the presenter, i.e., the Initiator.

On 4 August 2004, the Respondent returned "documents negotiated for our complete discharge", and on 12 August 2004 the Initiator acknowledged "receipt of the documents" without any qualification or other comments. Having refused the initially presented documents on 30 June 2004 and not having returned such documents to the Initiator, then the Respondent must have been "holding the documents at the disposal of" the Initiator (sub-article 14 (d) (ii) of UCP 500). While in its refusal the Respondent mentioned that "the applicant has returned the documents presented with discrepancies, including the documents sent directly by the beneficiary to him", and in its following responses to the Initiator's arguments, the Respondent categorically stressed "that documents negotiated 'always' remained in our possession", so that in the absence of any other representations or evidence, it is obvious that these statements of the Respondent are inconsistent with each other. However, it is not obvious whether or not the Respondent has delivered any document negotiated by, and while held at the disposal of, the Initiator to the applicant or any third party.

Therefore, on the basis of the available information and taking into consideration certain difficulties of the representatives of the Respondent to express themselves in the English language, it is not evident beyond a reasonable doubt that the Respondent has failed to hold the documents at the disposal of the Initiator, and therefore the Respondent is not precluded from claiming that the initial presentation of documents is not in compliance with the terms and conditions of credit.

2. As both documents which, according to the Respondent's refusal of 30 June 2004, were defective, have been re-presented as substitute documents and within the presentation period and the expiration date of the credit, the only discrepancies that the Respondent is entitled to raise relate to the form and content of the substitute documents (cf. R 328 in ICC Publication No. 613).

In the course of the ensuing communications between the Initiator and the Respondent, the Respondent's refusal of 16 July 2004 has been followed by a further advice of refusal dated 20 July 2004 and various further communications which, to a considerable extent, stated additional discrepancies or reasoning concerning already alleged discrepancies. Sub-article 14 (d) (ii) of UCP 500 requires that the issuing bank, i.e., in this case the Respondent, must provide with respect to any presentation (which includes any re-presentation (cf. R 328 in ICC Publication No. 613)) one single notice of refusal, if any, which incorporates each and all discrepancies (cf. R 271 in ICC Publication No. 271) on which the refusal is based. This is why any and all discrepancies raised by the Respondent after the refusal dated 16 July 2004 must be ignored, and the Respondent is bound to pay under the credit, even though valid discrepancies may exist, in case all discrepancies stated in the refusal of 16 July 2004 are invalid (cf. R 329 in ICC Publication No. 613).

Since the Respondent has authorized, inter alia, the Initiator to negotiate against documents which appear on their face to be in compliance with the terms and conditions of the credit, the Respondent is bound to reimburse the Initiator and to take up the documents (cf. sub-article 14 (a) of UCP 500), unless the discrepancies stated in the refusal are valid.

The reference to other discrepancies in such refusal by the words "amongst others" is no statement of any one or more specific discrepancies and is therefore irrelevant under the requirement of sub-article 14 (d) (ii) of UCP 500.

3. Certificate T2: the amendment of the credit called instead of "copy T2L" for a "copy or photocopy of T2". The beneficiary re-presented as a substitute document a copy of the T2 which the Initiator accepted as complying with the terms and conditions of the credit, and which the Respondent's refusal rejected as follows: "T2L has not been corrected. We maintain the discrepancy indicated in our SWIFT dated 02 Jul 04." Such discrepancy alleged formerly was that T2L was presented instead of T2. Since the substitute document in its appropriate field indicates that it is a "T2" document, there is no discrepancy as alleged, and therefore the reason given for the rejection of this substitute document under the credit is not justified.

4. Insurance certificate: the certificate of insurance as substitute document refers to the Respondent as "(Beneficiary)" in a field at the bottom of which the following is stated: "THIS IS TO CERTIFY that the goods specified below have been insured by this Company on behalf of the above mentioned." Further, this certificate of insurance shows a blank space after "claims payable at". Finally, it bears the following reference in half-bold type and capital letters, as well as being underlined within a field containing the applicable insurance clause and several other pieces of data: "SEE SPECIAL INSTRUCTIONS OVERLEAF". But the reverse of this document is blank. The substitute document appears to be signed at the bottom left by or on behalf of the insurance company and at bottom right by or on behalf of the beneficiary on and about where one finds the imprinted sentence: "This certificate is not valid unless countersigned by or on behalf of:".

The refusal of the Respondent dated 16 July 2004 notes in respect of such substitute document "insurance certificate presented once again, issued to bearer, countersigned by a third party different from the drawee, not endorsed and the document is incomplete." This refusal is ill-founded because (a) the Respondent is named in this certificate of insurance as the "beneficiary" and the person on whose behalf such goods are insured. Therefore, such substitute document is not made out to bearer nor does it need any endorsements; (b) the printed clause in the form of the certificate, "SEE SPECIAL INSTUCTIONS OVERLEAF", does not require the insertion of special instructions on the reverse side of such substitute document, as the credit does not require any special instructions. But such clause draws attention to the fact that if any special instructions are to apply, then they are to be found on its reverse side; (c) finally, the certificate of insurance appears to be signed by or on behalf of the insurance company, and the countersignature, apparently by or on behalf of the beneficiary, is expressed as a condition of validity of such certificate only (since it appears to be issued under the insurance company's policy to such beneficiary), but is not expressed as any issuing or co-issuing signature(s).

Therefore, the substitute document certificate of insurance may not be refused by the Respondent on the basis of the discrepancies stated in the Respondent's refusal dated 16 July 2004.

Decision

The presentation under the credit, as amended by the presentation of the substitute documents, was not discrepant in any respect stated by the Respondent in its first notice of refusal (refusal dated 16 July 2004) after the presentation of such substitute documents, and therefore the Respondent is bound (a) to reimburse the nominated bank (Initiator) which has negotiated and (b) to take up the documents.